Saturday, 31 October 2009

Sourcing Better Returns on Deposit Funds

The current interest rate outlook in Australia recently changed from downward / stable to upward as the economy recovers from the ‘Global Financial Crisis’. This scenario provides opportunities for banks and other financial services organisations to slow the growth of the increase in their cost of funds (interest paid out), generally by introducing new products that offer higher rates whilst leaving the rates on existing deposit accounts as they were. Thus in a rising interest rate environment those that have variable rate products should keep a close eye out for new products on offer from their bank or financial institution.

In our case we’ve been keeping the bulk of our cash savings / working capital in a NAB iSaver account. The interest rate given that the funds are at call were very competitive in the downward trending / stable rate environment, although accessing funds does entail transferring from the iSaver account to a transactional account via Internet Banking and then making the final transfer or payments from there. The NAB decided to take a slightly different approach in reducing its rate of growth of its cost of funds and introduced the concept of ‘introductory rates’ on new iSaver accounts. Old / pre-existing accounts thus continued to receive the old / lower rates. The current advertised rate for iSaver accounts is 4.65 % p.a. and the NAB website reads in part “Open a NAB iSaver on or before 12 January 2010 and you’ll receive a fixed bonus interest rate of 1.65% p.a. for 4 months, on top of the standard variable interest rate, currently 3.00% p.a.”

To further complicate things from a customer perspective it is not possible to ascertain the rate paid on one’s iSaver account via internet banking Account Inquiry as the relevant screen does not show the ‘account opened’ date or ‘actual rate being paid’. It just has a link to the ‘advertised rate’ screen on the main NAB website. To find out the rate the customer needs to ring the banker or alternatively calculate the rate of daily interest accrual by comparing interest accrued for one day to the next. NB: Check the amount accrued one day, and then log on again the next day and compare, and calculate the rate that must have been accruing based on the difference.

A good / smart banker is generally prepared on request to close off an old account and open a new one; enabling the customer to be paid the higher rate. In our case our banker did this for us when requested. Her replacement, however, was both lazy and short-sighted and refused to do the change-over – instructing us to call ‘at the local branch’ and ask them to do the work (for him). During our recent trip to Melbourne we called on a Branch Manager Phillip has known for many years. After ascertaining our goals she suggested we open an account with the NAB’s recently commissioned wholly own subsidiary, UBank. We’d not heard of this company but understand that it has been established to enable the NAB to compete with the likes of ING bank whilst continuing to pay lower rates to existing NAB customers (the second point is our own thinking).

We have now opened a USaver account at UBank and found the process painless. For anyone who is thinking of doing the same you will need to have on hand the following to make the process easier:
  • Mobile phone
  • Tax file number/s
  • Driver Licence, Passport and Medicare card
  • Email addresses (one for each person who will operate on the account/s)
  • A preferred ‘security question’ and answer e.g. what was the name of your first primary school teacher, or, what was your mother’s maiden name.

We are not, in writing this post, formally recommending or endorsing UBank to readers, simply sharing what our own experience and recent actions have been. Each reader needs to do his or her own research and make decisions based on what’s best for them.

1 comment:

Anonymous said...

Hi Phillip,

I also recently was looking to set up a term deposit and found the NAB's offer good for the first few months only. While looking for an ING account I also came across UBank and would agree with you that the process was painless and quick. I have had to call them a couple of times with questions and each time the experience has been one of the experiences I have ever had with any bank.

Gabrielle Dolan